Next to expand retail space to boost ‘volatile’ trading

Full price sales and profits fall for fashion and home furnishing retail chain Next, signalling a store estate reshuffle to heed warnings of further ‘challenging and volatile’ conditions.

Next plc reported a 0.3% decline in full price sales in the first half of the year covering the 26 weeks to 30 July 2016. Overall sale grew 2.6% to £1.95bn, driven by Next Directory (catalogue) sales, up by 7.1%.

Next Retail’s division posted a slender total sales growth of 0.1%, although full price sales were down 3.2%. Group pre-tax profits fell 1.5% to £342.1m, with profits in its retail segment declining by 16.8% to £134m.

Next said that it is now planning to increase net trading space by 3500,000sq ft this year, which would bring its portfolio to 8million sq ft, significantly more than it forecast in March.

Under the major expansion plan, which will see 27 new openings, Next aims to deliver the new stores that were planned to open early in 2017/18 ‘towards the end of the current year’.

Next revealed that store numbers will remain ‘broadly the same, with the increase from new stores being offset by the closure of smaller, less profitable stores’, as it plans to close 28 bringing its estate to 539, down from 540.

The new openings would generate 610,000sq ft retail space, whilst the closures would see a reduction of 320,000sq ft, as well as indicating that 60,000sq ft would be added through extensions at existing sites.

Stated within the report, Next said: “At a time when retail sales are moving backwards, it may seem counterintuitive to be adding new space. Our view is that, in a difficult trading environment, taking new space is one of the few ways to mitigate losses from negative like for like sales.”

Next pinpointed three areas that would see the reshuffle of its stores to be effective including that its new space must generate 15% profit, allowing it to pay back invested capital within two years, and taking a lease of 10 years or less.

Adding: “These criteria mean that even if there is a significant decline in like for like sales, new stores are likely to deliver healthy returns on capital and remain profitable for the life of their lease. Our store portfolio remains extremely profitable and the average remaining lease term is not onerous (7.3 years).”

Next also highlighted that ongoing developments within its website and mobile platforms continued, with the integration of a new comprehensive customer database and new display software into its main ecommerce site.

During the period, Next also launched its mobile website, m.next.co.uk, to all handheld devices, which has seen its conversion rate increase by 16% from 4.9% to 5.7%. Furthermore, Next said it will ‘enable’ the purchase of sofas and furniture through the mobile site, as well as planning to launch the site to overseas customers after it has ‘converged’ its overseas and UK websites onto one platform.